Across the UK, there is an increasing demand for new homes – yet a significant number of promising residential sites remain undeveloped. Many of these sites fall into a particular category: small to mid-sized schemes of around 5 to 20 homes. These opportunities are often too small for the major housebuilders to consider, but too large or capital-intensive for smaller contractors to fund on their own. This funding gap represents a clear opportunity for specialist lenders, equity partners and experienced developers to work together to deliver much-needed homes.
Residential Development Funding – The Market Gap
Sites Too Small for the Big Players, Too Large for the Small
Large volume housebuilders typically target sites with substantial scale that can deliver hundreds of units, enabling them to absorb the upfront land costs and infrastructure expenditure. Their balance sheets allow them to secure sites outright, often well in advance of detailed planning.
By contrast, many small developers identify excellent consented sites but lack the immediate cash to both purchase the land and fund early-stage development. For sites delivering between 5 and 20 units, traditional bank funding is often less flexible, and the cost of finance can be disproportionate to the size of the scheme. Meanwhile, these sites are often too complex or ambitious for smaller contractors who lack access to significant working capital.
The result is a growing pipeline of viable residential schemes that stall at the land acquisition stage – not because the schemes are unprofitable, but because the equity required to purchase the land is the missing piece.
How Specialist Residential Development Funding Works
This is where specialist development lenders step in. Unlike traditional lenders, they are structured to support smaller and medium-sized projects by funding up to 100% of the construction costs. This financing typically covers build costs, professional fees, contingency and rolled-up interest, meaning the developer doesn’t need to allocate equity to the build costs.
Under this model, the developer’s or investor’s equity is primarily required for the land purchase, often representing 15-25% of total project costs. Once the land is secured, the development loan finances the rest, enabling construction to begin without large upfront cash reserves.
Why This Creates Attractive Investment Opportunities
Small residential schemes can offer compelling financial returns, particularly when approached with discipline and experienced delivery partners. Typical features include:
- Faster delivery: Small schemes generally have shorter build programmes and can be completed and sold within 12-24 months.
- Attractive equity multiples: Many projects in this category deliver strong returns, with equity multiples between 1.3x and 1.7x, depending on the site, planning status and exit strategy.
- Lower competition for sites: Major developers often overlook smaller plots, reducing competitive bidding pressure and supporting healthier margins.
- Clear exit strategies: Units in well-located small schemes are often targeted at local owner-occupiers or downsizers, providing reliable demand and steady sales rates.
This model also aligns with broader housing delivery goals. By unlocking stalled sites, specialist funding helps bring forward much-needed housing in areas where large schemes would be less appropriate or take too long to deliver.
Equity: The Key to Unlocking the Pipeline
There is currently a healthy pipeline of small fully approved residential projects across the UK showing good equity returns, but they need investors willing to fund the land component. This equity is the crucial first step whilst specialist lenders finance the rest.
For equity investors, this presents an opportunity to:
- Deploy capital into tangible, asset-backed projects.
- Benefit from robust returns on a relatively short investment horizon.
- Support the delivery of much-needed housing at a local level.
- Partner with experienced developers and funders with proven track records.
- Opportunity to own and rent out the units at the end of construction.
Why Now?
Market conditions are aligning to make this niche particularly compelling. While large developers remain focused on scale, smaller sites can move faster, respond to local demand, and capitalise on specialist funding structures. With planning pressures, housing delivery targets, and a shortage of smaller homes in many regions, this segment of the market offers both commercial and societal upside.
The UK housing market doesn’t just need large developments – it needs a steady flow of well-delivered small schemes that bring homes to communities faster. There is a clear funding gap between traditional housebuilders and small contractors, but specialist lenders and equity investors can bridge this.
By providing the equity to acquire land, investors can unlock consented projects where specialist lenders fund the build costs. With strong projected equity multiples and short project timeframes, residential development funding for small sites represents a significant opportunity for investors and developers alike.
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